Valvoline Instant Oil Change, Inc. v. Tracy - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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1 Valvoline Instant Oil Change, Inc., Appellant, v. Tracy, Tax Commr.,
2 Appellee.
3 Ashland Branded Marketing, Inc., Appellant, v. Tracy, Tax Commr.,
4 Appellee.
5 SuperAmerica Group, Inc., Appellant, v. Tracy, Tax Commr., Appellee.
6 [Cite as Valvoline Instant Oil Change, Inc. v. Tracy (1997), _____ Ohio
7 St.3d ____.]
8 Taxation -- Listing personal property -- State's use of different tax
9
listing date for existing businesses than for new businesses
10
not a violation of right to equal protection.
11
(Nos. 96-52, 96-53 and 96-54 -- Submitted September 19, 1996 --
12 Decided March 19, 1997.)
13 Appeals from the Board of Tax Appeals, Nos. 94-B-1179, 94-B-1180
14 and 94-B-1181.
15
Ashland Oil, Inc. ("Ashland"), which paid its 1989 personal property
16 tax for the fiscal year ending September 30, 1988, operated three divisions
17 known as Valvoline Instant Oil Change, Ashland Branded Marketing, and
18 SuperAmerica. Prior to October 2, 1989, Ashland incorporated these
19 divisions as separate, wholly owned subsidiaries. Ashland named them

1 Valvoline Instant Oil Change, Inc., Ashland Branded Marketing, Inc., and
2 SuperAmerica Group, Inc., appellants. On October 1, 1989, Ashland
3 transferred the assets of the former divisions to the respective subsidiaries,
4 and the subsidiaries began business. The subsidiaries filed their 1989
5 personal property tax returns employing Ashland's fiscal year listing date of
6 September 30, 1988.
7
The Tax Commissioner, appellee, audited the subsidiaries' returns.
8 He listed their fixed assets as of the date they first engaged in business,
9 October 1, 1989, under R.C. 5711.03. The commissioner also listed the
10 average of their actual inventory levels for the last three months of 1989.
11
The subsidiaries concede that the commissioner assessed them
12 according to the statutes; however, they claim that this treatment denies
13 them equal protection. On appeal, the Board of Tax Appeals ("BTA")
14 affirmed the commissioner's orders after removing some property from the
15 assessments according to the parties' stipulations. The BTA declined to
16 address the constitutional questions under Cleveland Gear Co. v. Limbach
17 (1988), 35 Ohio St. 3d 229, 520 N.E.2d 188, paragraph one of the syllabus.
18
These causes are before this court upon appeals as of right.

2

1
William R. Buzo, for appellants.
2
Betty D. Montgomery, Attorney General and James C. Sauer,
3 Assistant Attorney General, for appellee.
4
Per Curiam. R.C. 5711.03 provides:
5
"*** [A]ll taxable property shall be listed as to ownership or control,
6 valuation, and taxing districts as of the beginning of the first day of January,
7 annually, except that taxable personal property and credits used in business
8 shall be listed as of the close of business of the last day of December,
9 annually ***. When a person or taxpayer engages in business in this state
10 on or after the first day of January, in any year, he shall list all his taxable
11 property, except inventory, as to value, ownership and taxing districts as of
12 the date he engages in business. In listing inventory as to ownership and
13 taxing districts he shall list the probable average value intended to be used
14 in business from the date he engages in business until the first day of
15 January next thereafter. ***" (Emphasis added.)
16
The subsidiaries maintain that requiring them to list their property as
17 of the day they first engaged in business denies them equal protection when
18 existing businesses list their property as of the close of business of the prior

3

1 year. They argue that this treatment results in an unequal burden on them as
2 new taxpayers. We disagree and affirm the commissioner's orders.
3
We observed in Doraty Rambler, Inc. v. Schneider (1965), 4 Ohio
4 St.2d 37, 39, 33 O.O. 2d 342, 343, 212 N.E.2d 580, 582, that "[t]he tangible
5 personal property tax in Ohio is prospective in nature and is levied and
6 assessed at the beginning of the year for the privilege of using tangible
7 personal property in business for the duration of the coming year." The
8 state may use antecedent facts as criteria in valuing personal property
9 inventory and, in this case, other personal property used in business for the
10 prospective personal property tax. Cleveland Gear Co. v. Limbach (1988),
11 35 Ohio St.3d 229, 233, 520 N.E.2d 188, 193.
12 In
Nordlinger v. Hahn (1992), 505 U.S. 1, 112 S. Ct. 2326, 120 L.Ed.
13 2d 1, the United States Supreme Court held that a state could discriminate in
14 favor of longer-term owners of real property to the detriment of newer
15 property owners. The court, 505 U.S. at 10, 112 S. Ct. at 2331-2332, 120
16 L.Ed. 2d at 12, set forth the conditions under which a state may classify
17 individuals:

4

1
"The Equal Protection Clause of the Fourteenth Amendment, §1,
2 commands that no State shall `deny to any person within its jurisdiction the
3 equal protection of the laws.' Of course, most laws differentiate in some
4 fashion between classes of persons. The Equal Protection Clause does not
5 forbid classifications. It simply keeps governmental decisionmakers from
6 treating differently persons who are in all relevant respects alike. F.S.
7 Royster Guano Co. v. Virginia, 253 U.S. 412, 415 [40 S. Ct. 560, 561, 64
8 L.Ed. 989, 990-991] (1920).
9
"As a general rule, `legislatures are presumed to have acted within
10 their constitutional power despite the fact that, in practice their laws result
11 in some inequality.' McGowan v. Maryland, 366 U.S. 420, 425-426 [81
12 S.Ct. 1101, 1105, 6 L.Ed. 2d 393, 398-399] (1961). Accordingly, this
13 Court's cases are clear that, unless a classification warrants some form of
14 heightened review because it jeopardizes exercise of a fundamental right or
15 categorizes on the basis of an inherently suspect characteristic, the Equal
16 Protection Clause requires only that the classification rationally furthers a
17 legitimate state interest. See, e.g., Cleburne v. Cleburne Living Center, Inc.,
18 473 U.S. 432, 439-441 [105 S. Ct. 3249, 3254-3255, 87 L.Ed. 2d 313, 320-

5

1 321] (1985); New Orleans v. Dukes, 427 U.S. 297, 303 [96 S.Ct. 2513,
2 2517, 49 L.Ed.2d 511, 517] (1976)."
3
In this case, the state may discriminate between new businesses and
4 existing businesses insofar as these classifications have different listing
5 dates. As mentioned, the state employs antecedent facts, i.e., the property
6 held by a business at the close of a business year, to estimate prospectively
7 the amount of property that a taxpayer will use in business during the
8 upcoming tax year. However, new businesses do not have assets as of the
9 close of the prior business year. They have not been in business. Thus,
10 Ohio employs the property the new business owns on the day it first engages
11 in business in Ohio and the new business's probable average value of
12 inventory in calculating its personal property tax. This Ohio may do. To
13 levy this prospective tax on the property of new businesses, a legitimate
14 interest, Ohio may calculate the value of the property as of the date the new
15 business has its first opportunity to use the property in business. Ohio may
16 also require the listing of the probable average value of inventory because it
17 evidently has concluded it has no other realistic measure of such inventory.
18 We hold that these listing requirements, which place new businesses in a

6

1 different classification from existing businesses, rationally further a
2 legitimate state interest, the prospective taxation of personal property used
3 in business.
4
Next, the subsidiaries cite Kroger Co. v. Schneider (1967), 9 Ohio St.
5 2d 80, 38 O.O.2d 204, 223 N.E.2d 676, to support their argument that R.C.
6 5711.03 places an unequal burden of taxation on them. Kroger is
7 inapposite. In Kroger, we held unconstitutional, under Section 2, Article I,
8 Ohio Constitution, a statute that applied graduated assessment rates to the
9 same class of inventory based on a merchant's total value levels. Such is
10 not the case here. Here, Ohio employs a different tax listing date for
11 existing businesses than for new businesses. As we have held, this
12 treatment does not violate the subsidiaries' right to equal protection.
13
Accordingly, we affirm the decisions of the BTA.
14

Decisions affirmed.
15
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK
16 and LUNDBERG STRATTON, JJ., concur.
17

7